In an Op Ed piece today, Robert Samuelson argues that the Sequester is really Kennedy's fault. That by going for a massive budget deficit through tax cuts in peace time, he set the stage for the unbalanced record of 43 budget deficits and 5 budget surpluses since.
In some sense Robert Samuelson is right. However, as the record below shows, it really isn't quite so simple. There have been a total of 12 surpluses since 1940 (7 under Democratic Presidents, 5 under GOP), and while surpluses have in fact become much rarer in modern times, blaming kennedy, whose policies would be an anathema to the GOP, seems much to simplistic.
I speculate that it was a confluence of factors. Some, like the collapse of the Gold Standard, are identified by tea party favorites like Ron Paul. The "supply side" economics - monetary theory and the idea that tax cuts will lead to increased revenues in all cases, may have had a lot to do with it too. After all, Reagan cut taxes expecting higher revenue, but the promised revenues never materialized.
However, Samuelson and others are, in many ways, focusing on the wrong problem and not addressing the elephant in the room.
To explain why, let me first demonstrate that the fundamental premise of the sequester debate is wrong,
Here's a very good summary of the sequester. The purported reason for the sequester debate is that we have massive deficits. However, as the president's 2013 budget shows, we have proposals on the table that would reduce the budget deficit to about 2.8% of GDP by 2022. Also, the sequester delays the long term debt crisis by two to three years at most. This isn't surprising. Significant portion of the short term deficits, were due to temporary factors like short term spending increases and revenue shortfalls.
So, what's the elephant in the room? Well, there is a redistribution of wealth taking place, from the young to the old. Here's what happens in the President's budget proposals:
To put this in perspective, if you exclude interest payments, of the total amount that Congress chooses to spend, a full 44% currently goes towards Social Security, Medicaid, and Medicare. By 2022, even with the President's proposals, a full 57% of the Federal spending excluding interest will be on these programs. This gets worse if you project it out further, ultimately growing to over 85% of the budget.
To balance the budget, we have to find the money from somewhere. Guess what gets cut? Well, everything else. To see how this works, look at the composition of the sequester cuts:
Everyone talks about this as an "entitlement reform". The language hides the seriousness of what is going on. The fact is that the US Federal Budget is increasingly a retirement program to sustain which we have to cut investments in Defense and Discretionary spending, which includes R&D and education, i.e. stuff that invests in the future. The US is therefore become more and more of a backward looking country, increasingly unable to invest in its future.
One reason for this is the effect on life expectancy.
US life expectancy has risen dramatically in the last century and has risen by almost a decade in the last 40 odd years. More pertinently, the life expectancy of those surviving to 65 has increased by almost 33% since the 1940s.
The net impact of this is that the cost of the retirement programs has also increased. The question we have to ask ourselves is that with modern education requiring 20 years of education, i.e. no work, can we afford another ~15-20 years of retirement? Can we really afford to have a situation where people spend nearly half their lives not working? And can we afford to pay for that through taxes?
In some sense Robert Samuelson is right. However, as the record below shows, it really isn't quite so simple. There have been a total of 12 surpluses since 1940 (7 under Democratic Presidents, 5 under GOP), and while surpluses have in fact become much rarer in modern times, blaming kennedy, whose policies would be an anathema to the GOP, seems much to simplistic.
I speculate that it was a confluence of factors. Some, like the collapse of the Gold Standard, are identified by tea party favorites like Ron Paul. The "supply side" economics - monetary theory and the idea that tax cuts will lead to increased revenues in all cases, may have had a lot to do with it too. After all, Reagan cut taxes expecting higher revenue, but the promised revenues never materialized.
However, Samuelson and others are, in many ways, focusing on the wrong problem and not addressing the elephant in the room.
To explain why, let me first demonstrate that the fundamental premise of the sequester debate is wrong,
Here's a very good summary of the sequester. The purported reason for the sequester debate is that we have massive deficits. However, as the president's 2013 budget shows, we have proposals on the table that would reduce the budget deficit to about 2.8% of GDP by 2022. Also, the sequester delays the long term debt crisis by two to three years at most. This isn't surprising. Significant portion of the short term deficits, were due to temporary factors like short term spending increases and revenue shortfalls.
So, what's the elephant in the room? Well, there is a redistribution of wealth taking place, from the young to the old. Here's what happens in the President's budget proposals:
To put this in perspective, if you exclude interest payments, of the total amount that Congress chooses to spend, a full 44% currently goes towards Social Security, Medicaid, and Medicare. By 2022, even with the President's proposals, a full 57% of the Federal spending excluding interest will be on these programs. This gets worse if you project it out further, ultimately growing to over 85% of the budget.
To balance the budget, we have to find the money from somewhere. Guess what gets cut? Well, everything else. To see how this works, look at the composition of the sequester cuts:
Everyone talks about this as an "entitlement reform". The language hides the seriousness of what is going on. The fact is that the US Federal Budget is increasingly a retirement program to sustain which we have to cut investments in Defense and Discretionary spending, which includes R&D and education, i.e. stuff that invests in the future. The US is therefore become more and more of a backward looking country, increasingly unable to invest in its future.
One reason for this is the effect on life expectancy.
US life expectancy has risen dramatically in the last century and has risen by almost a decade in the last 40 odd years. More pertinently, the life expectancy of those surviving to 65 has increased by almost 33% since the 1940s.
The net impact of this is that the cost of the retirement programs has also increased. The question we have to ask ourselves is that with modern education requiring 20 years of education, i.e. no work, can we afford another ~15-20 years of retirement? Can we really afford to have a situation where people spend nearly half their lives not working? And can we afford to pay for that through taxes?
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